Citi's prize commodities-trading unit, Phibro, didn't have anything to do with stuffing the balance sheet full of the assets that are dragging the firm (and taxpayers) to the bottom of ocean. Phibro also generated more than half-a billion dollars of revenue for the firm last year.

The head of the unit, Andrew Hall, took home $100 million.

Now that Citi has been forced by the TARP restrictions to pay its executives merely astronomically, Hall and Phibro want out.

And can't say we blame them. Why on earth would you work for Citi for chicken feed when, say, Deutsche Bank is happy to pay you $100 million a year?

Citi, meanwhile, doesn't want to see Phibro walk across the street, so it's begging Tim Geithner to let it pay everyone a massive special bonus totalling 50% of their cumulative compensation for the past three years. (That would presumably be $75-$100 million for Hall, paid in stock that vests over three years).

And can't say we blame Citi. Why on earth shouldn't they try to keep their best assets instead of letting the firm go to the dogs? (As shareholders, this is also presumably what we should want them to do.)

And then pity poor Tim Geithner. If he says "no" to this request, Phibro will walk from Citi, taking its revenue with it. If he says "yes," he'll get his face ripped off by the public and media again.

Such is the lunacy of the US government owning major stakes in massive financial institutions but pretending it hasn't nationalized them.

If the government had just seized Citigroup six months ago, as it was supposed to, we wouldn't be in this position. The company would have been chopped up and units like Phibro would already have been sold off. Bondholders would have absorbed some of the costs (as they should). And we wouldn't be in the absurd position we find ourselves in now.